All That Twitters Is Not Gold

The most common question we have heard from our clients lately is, "Should we buy gold?" There is a long list of reasons why the answer is "No!"

  1. Gold investors made absolutely no money for 25 years from 1980 to 2005, according to Ibbotson Associates.
  2. The price of gold actually declined about 50% from 1980 to 2000. Even the most disciplined of investors would have given up during that time, since traditional stocks and bonds were performing well above average during that same period.
  3. Gold, like all commodities, does not pay any interest or dividends.
  4. Only about 11% of gold has an industrial use. It is not sold and consumed like oil or natural gas.
  5. The actual replacement cost of gold is about half of the current value. According to Dan Denbow, co-manager of the USAA Precious Metals and Minerals Fund, it costs about $600 to produce an ounce of gold, but that rises to about $1,000 per ounce when all of the costs of mining are factored in.
  6. As of this writing, gold recently spiked above $1,900 an ounce.
  7. Gold was up about 16% for the month through August 22, 2011, therefore heading for its best monthly performance since September 1999.
  8. Gold has increased in value in value for 11 years, the longest winning streak since at least 1920.
  9. Exchange Traded Funds (ETFs) have made it very easy for individual investors to buy gold. But if selling is triggered, heaven-forbid panic selling, then the price swing could be swift and sharp.

In our opinion, buying gold today is like buying tech stocks in the late 1990s. It may continue to go higher in the short-term, but the long-term trend is screaming "buy high," to be followed, of course, by "sell low!" Let's not do that!

About Bruce J. Berno, CFP®
Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com/.